Private health insurance carrot feels more like a stick

Colin Cosier

When I turn 31 this week I’ll join a group of Australians who will be financially penalised for not having private health insurance. I’m not alone. Just more than half of all Australians are not insured.

I’m not covered because I don’t earn enough money to justify the premium and I don’t need it because I’m already covered under our perfectly adequate public health system, Medicare.

But, as a 1983 vintage, I’m about to cross the government’s starting line for the Lifetime Health Cover initiative.

The misleadingly named policy would be better called for what it is: a fine; or a community-funded subsidy of the private health insurance industry.

Under LHC, for every year past my 31st birthday that I don’t have private hospital cover, I’ll be slugged a 2 per cent LHC loading on top of any future premium for every year that I wasn’t insured past the age of 30. And that 2 per cent loading accumulates annually. So if I purchased hospital cover at 40, my premiums would cost 20 per cent more than if I had been covered before my 31st birthday.

The average LHC loading payable is 24 per cent, meaning the average Australian bought their policy at 42 years of age.

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The maximum loading an individual can accumulate is 70 per cent but that loading sticks to your premium for 10 years before it’s removed. The government doesn't collect the money, insurers do.

So why not just buy hospital cover? Well, even the cheapest premiums can be expensive. And, for tax purposes, buying hospital cover only makes sense if you earn more than $88,000 so as to avoid paying the Medicare Levy Surcharge.

Private Health Insurance Administration Council figures show there are 1,144,564 adults subject to a loading on their premium. That’s about 14 per cent of all adults with hospital cover.

LHC was a Howard government initiative which the previous Labor government sharpened by removing the private health insurance rebate from the loading.

PHIAC figures show that when LHC was announced in the May 1999 Budget to its full inception in September 2000, the proportion of the population with hospital cover increased from 30.4 per cent to 45.8 per cent. So I don’t like my chances of the major parties raising LHC for debate anytime soon.

A federal Health Department spokeswoman says that by encouraging young people to pay for private insurance, LHC “improves the risk profile of health fund members while maintaining the basic principles of community rating, thus helping to contain the cost of private health insurance for all consumers without discriminating against people who may be more likely to have a higher rate of claiming against their private health insurance”.

Community rating is a fine and equitable idea. But everyone is covered by Medicare so why do we need to be covered twice?

Health economists have argued that the private system doesn’t necessarily reduce the strain on the public system, yet our government insists, via LHC, that everyone older than 31 is compelled to support parallel health systems.

The rich will always be able to afford private health cover, and the means-tested Medicare Surcharge Levy ensures that genuine higher income earners have an incentive to buy insurance.

A certain private health insurer’s TV advertisement with retro graphics that read: “Because you were born in 1983” tries to remind me that it’s time for me to buy private health insurance.

Instead the ad reminds me that the greatest beneficiaries of my impending birthday are the private health insurance providers that see their industry subsidised by the Australian people.